The $10 Million Problem: Why Maryland's Estate Tax Matters More Than Ever
Your neighbor retired last year with a $6 million estate. Paid-off home in Potomac, healthy 401(k)s, some investments, life insurance. Nothing extravagant.
The estate settlement just finished. Maryland took $240,000 in taxes before the kids saw a penny.
She never felt wealthy enough to worry about estate taxes. That's exactly the problem.
Maryland's $5 Million Trap
Maryland is one of the few states that still imposes its own estate tax. The threshold? $5 million, flat. Not indexed for inflation. Not portable between spouses like the federal exemption.
Here's what that means:
Your home: $1.4M
Two 401(k)s: $2.8M
Investments: $900K
Life insurance: $1M
Total: $6.1M
You just triggered $160,000 to $240,000 in Maryland estate tax.
The federal exemption is now roughly $7 million per person after the 2026 sunset. But Maryland's stayed at $5 million. If your estate sits between $5M and $7M, you could owe Maryland taxes while owing nothing federal.
Above $7 million? You're now exposed to both. The combined hit can exceed $1 million.
How You Hit $5 Million Without Trying
Everything counts toward Maryland's threshold:
- Your home (current market value)
- All retirement accounts, including Roth IRAs
- Life insurance you own
- Investment accounts
- Business interests
- Even that vacation property
According to Zillow's market data, median home values in the Washington D.C. metro area have increased substantially over the past 15 years. That Potomac house you bought for $850,000 in 2010? It's worth $1.5 million now.
Add normal retirement savings and life insurance, and you're there. You didn't speculate. You didn't take excessive risks. You just lived in your home while the market appreciated around you.
Five Strategies That Actually Reduce Maryland Estate Tax
These work best when implemented years before death, not months. Maryland calculates tax on your estate's value at death. Last-minute options are extremely limited.
1. Annual Gifting
Remove assets systematically. The 2026 annual exclusion is $19,000 per recipient.
A couple with three married kids and six grandchildren can gift $342,000 per year ($19,000 × 18 people) without touching their lifetime exemption or filing returns.
That pace moves a $7 million estate below $5 million in roughly six years.
2. Spousal Lifetime Access Trusts (SLATs)
Transfer $2 to $3 million into an irrevocable trust for your spouse's benefit. The assets leave your estate for tax purposes, but your spouse can still access them.
Critical: This only works if structured correctly before death. You can't unwind it later.
3. Irrevocable Life Insurance Trusts (ILITs)
Own a $2 million life insurance policy? That $2 million counts toward your taxable estate.
Move it into an ILIT, and the death benefit disappears from your estate calculation. At Maryland's rates up to 16%, that's $160,000 to $320,000 in potential savings.
4. Qualified Personal Residence Trusts (QPRTs)
Transfer your home to a trust while keeping the right to live there for 10-15 years. The gift value gets discounted (often 40-60%), and all future appreciation happens outside your estate.
Works especially well for high-value Maryland homes that will continue appreciating.
5. Charitable Remainder Trusts (CRTs)
If you have highly appreciated stock or real estate and charitable intentions, CRTs provide income now, reduce your estate, and generate immediate tax deductions.
You diversify without triggering capital gains, spread income over time, and shrink your taxable estate simultaneously.
Why Generic Advice Fails Maryland Residents
Most estate planning assumes no state tax. Florida and Virginia eliminated their state estate taxes. Maryland didn't.
The Roth conversion trap:
Standard advice: Convert your traditional IRA to a Roth. Pay taxes now, grow tax-free forever.
Maryland reality: The conversion triggers Maryland's 5.75% top rate plus federal taxes immediately. But the Roth IRA still counts toward your $5 million estate threshold.
You paid massive income taxes upfront for zero estate tax benefit.
The portability problem:
Federal estate tax allows portability between spouses. If your spouse dies with unused exemption, you can claim it.
Maryland doesn't offer portability. Each spouse has a separate $5 million exemption that disappears if not used. This is why Maryland couples often need AB trusts or disclaimer trusts, even though those structures fell out of favor nationally.
You need someone who understands Maryland's specific rules, not just federal planning.
What To Do Right Now
Step 1: Add up your estate
Real estate (current value), retirement accounts, life insurance, investments, business interests. Be honest about the numbers. If you're approaching $5 million, you may have a Maryland estate tax problem.
Step 2: Model both state and federal exposure
With the federal exemption now around $7 million, estates between $5M and $7M face Maryland tax only. Estates above $7M face both. Know which category you're in.
Step 3: Implement at least one strategy this year
Annual gifting, SLATs, ILITs, QPRTs, and CRTs all take years to reach full effectiveness. Waiting until you're 75 or 80 dramatically limits what's possible.
The families who avoid six-figure tax bills aren't necessarily richer or smarter. They just started earlier.
The Montgomery County Factor
Real estate appreciation alone is pushing successful professionals over Maryland's threshold. That home you bought in Bethesda or Potomac 15-20 years ago has likely doubled in value.
Combined with normal retirement savings, you're suddenly above $5 million without any sophisticated wealth accumulation. Just steady saving and fortunate geography.
Maryland's estate tax doesn't distinguish between "accumulated wealth slowly" and "ultra-wealthy." It sees a number at death and applies its rates.
Is your estate approaching $5 million?
With the federal exemption now at $7 million, more Maryland families face both state and federal estate tax. Schedule a consultation to model your specific exposure and identify which strategies make sense before options narrow further. Contact us today to protect what you spent decades building.
PlanMember Securities Corporation and Paladin Advisor Group are not associated with or endorsed by The Social Security Administration or any other government agency. This information is a general overview of certain rules related to Social Security and the ideas presented are not individualized for your particular situation. This information is based on current law which can be changed at any time.
This content is developed from sources believed to be providing accurate information. It is not intended to provide specific tax, legal and/or investment advice or recommendations for any individual. It is suggested that you consult with your tax, legal and/or financial services professional regarding your individual situation. This material was developed and produced by Paladin Advisor Group to provide information on a topic that may be of interest.
